There is any number of corporate mash-ups that describe the practice: kitchen sinking; deck-clearing; balance-sheet cleansing.

A new chief executive takes the reins and, on the first set of earnings to be disclosed to the public, he takes the high road.

He gains no mileage from taking responsibility for the mistakes of his predecessors and so has every incentive to aggressively expose them to the disinfectant of daylight. Impaired loans, poor expenditure a weak balance sheet – all are thrown into the usually half-year result.

Profits look disastrous but the silver lining (especially for the new appointee) is that there are better than even odds of the next set of results looking spectacular and the new appointee’s star remains ascendant.

This is not to suggest impropriety. Directors have degrees of freedom within the boundaries established by international accounting standards and can strike a conservative line.

Even in the best of times such a practice can deliver spectacular results, but as General Property Trust (GPT), Australia’s largest real-estate investment trust demonstrated last week, in difficult times the effect can be extraordinary.

Just five months after it raised a massive $A1.6 billion dollars from investors and just over two months after it posted an $A3.25 billion loss, it last week asked its shareholders for a further $A1.2 billion.

It added it would take another $A500 million if investors were willing. The loans are to be used to re-capitalise its balance sheet and regain the trust of its financiers and head off $A1.5 billion of loans due in the coming year.

This was not an action that could possibly be contemplated by a long-standing chief executive. Although regularly flouted, especially in New Zealand, it is almost corporate credo that companies tap capital markets once during the credit cycle.

Perhaps more importantly, they do it well ahead of need.

Contrast in this country, for instance, the capital raising conducted by Freightways and Nuplex. The former was pre-emptive and although its share price has suffered, it is still streets ahead of the latter’s, which fell victim to a cash call conducted in its hour of greatest need.

In short, only a new man (or in this case, a new team) could pull it off. Just two weeks ago GPT announced a major board reorganisation. Former St George bank chief, financial officer Michael Cameron, filled the vacancy left by former chief executive Nic Lyons, who quit amid the furore over the earlier capital raising.

At the same time Ken Moss, who has been a GPT non-executive director since 2000, was named as chairman and will assume the position after the trust’s AGM later this month. Its major shareholder, The Singapore government’s real estate investment arm GIC Real Estate, also appointed a director, largely bringing to an end a reshuffle that started last year.

The capital raising is not a great result for existing share holders, even for those who acquired shares in the company at 60c during the last cash call and it is much worse for those who acquired shares when they peaked at $A4 in January 2007. However, there is no contest between this and a failed re-financing.
GPT has been ravaged by the credit market contagion.

The sharp withdrawal of capital from the sector saw a huge blowout in its debt and left it nursing huge losses particularly via its disastrous $A6.2 billion industrial, retail and residential joint venture with stricken investment bank Babcock & Brown.

Barring further gyrations in international capital markets, MR Cameron appears to have set GPT on course. After the capital raising, net tangible assets per share range between 54Ac in the worst case and 95Ac at the top end.

In short, shareholders are being given a reasonable incentive to stump up with the readies. Gearing falls from 34% to a more respectable 25%, and gives it plenty of headroom in the event of further deterioration in property markets. Its net refinancing requirement between now and 2010 falls from $A1.5 billion to just $A300 million.

The debt rating agencies are also making positive noises and all of this will improve its negotiating position as it seeks to consolidate its operations around its high-quality Australian portfolio. GPT is trying to quit $A1.4 billion of assets, but so far has only reaped $A90 million in the past year.

Mr Cameron is also accelerating this process. Most notably, he has acknowledged GPT’s joint venture with Babcock & Brown is likely to have zero value and has taken steps to accelerate its windup.

“GPT now has much more control over its own destiny and much more control dealing with the banks,” Mr Cameron told reporters at the time of the announcement. “We won’t be perceived as a forced seller. It puts us in a better negotiating position.”

Cameron appears to be just the sort of man the Australian Property sector needs. Before GPT and St George Bank (now part of Westpac), he held senior roles at Commonwealth Bank and National Australia Bank.

Although the major trading banks have not escaped the financial crisis unscathed, Cameron’s CV and reputation is sure to give comfort to their representatives as they navigate their way through what has been a perfect storm.

Richard Inder is an investment adviser at Macquarie Private Wealth. His disclosure statement is free and is available on request. Clients may hold shares in the firms mentioned. Comments, think differently? Write to richard.inder@macquarie.com